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Policy Trade-Offs in Building Resilience to Natural Disasters: The Case of St. Lucia

Author

Listed:
  • Mr. Leo Bonato
  • Mr. Gonzalo Salinas
  • Mr. Giovanni Melina
  • Mr. Alessandro Cantelmo

Abstract

Resilience to climate change and natural disasters hinges on two fundamental elements: financial protection —insurance and self-insurance— and structural protection —investment in adaptation. Using a dynamic general equilibrium model calibrated to the St. Lucia’s economy, this paper shows that both strategies considerably reduce the output loss from natural disasters and studies the conditions under which each of the two strategies provides the best protection. While structural protection normally delivers a larger payoff because of its direct dampening effect on the cost of disasters, financial protection is superior when liquidity constraints limit the ability of the government to rebuild public capital promptly. The estimated trade-off is very sensitive to the efficiency of public investment.

Suggested Citation

  • Mr. Leo Bonato & Mr. Gonzalo Salinas & Mr. Giovanni Melina & Mr. Alessandro Cantelmo, 2019. "Policy Trade-Offs in Building Resilience to Natural Disasters: The Case of St. Lucia," IMF Working Papers 2019/054, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2019/054
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    References listed on IDEAS

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    1. Borensztein, Eduardo & Cavallo, Eduardo & Jeanne, Olivier, 2017. "The welfare gains from macro-insurance against natural disasters," Journal of Development Economics, Elsevier, vol. 124(C), pages 142-156.
    2. International Monetary Fund, 2018. "St. Lucia: Climate Change Policy Assessment," IMF Staff Country Reports 2018/181, International Monetary Fund.
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    1. Dynamic General Equilibrium modelling of tiny countries
      by Christian Zimmermann in NEP-DGE blog on 2020-08-11 14:47:26

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    Cited by:

    1. Amr Hosny, 2021. "Adapting to Climate Change in Vietnam: Insights from a Structural Model," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 9(2), pages 145-152, June.
    2. Mr. Chris Papageorgiou & Mr. Giovanni Melina & Mr. Alessandro Cantelmo, 2019. "Macroeconomic Outcomes in Disaster-Prone Countries," IMF Working Papers 2019/217, International Monetary Fund.

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